DEA 2010: Copyright Infringement Costs Allocation

September 13, 2010

The Government has set out its plans for how costs will be shared as part of the Digital Economy Act’s measures to tackle online infringement of copyright.

Following a consultation on the best way to share the costs arising under the enforcement regime, the decision will see costs resulting from these measures split between rights holders and ISPs at a ratio of 75:25 respectively.

The Government has also announced that no fee will be charged to consumers who want to appeal a notification. 

The Government response fails to address a number of issues and seems to misrepresent the SCL input to the consultation exercise.

The costs concerned arise (i) from the obligation to be imposed on ISPs to send notifications to subscribers who have been the subject of alleged infringements of copyright and (ii) from the obligation imposed upon them to maintain anonymised records of the number of times an individual subscriber has been the subject of such reports and to maintain lists of those most frequently identified in such reports and provide copyright owners with lists on request. Those obligations would be underpinned by a code drawn up by stakeholders and approved by Ofcom and that element has associated costs too. There are also costs relating to the establishment and running of an appeals mechanism and Ofcom’s own costs in discharging its duties in relation to these obligations.  

Minister for Communications, Ed Vaizey, commented:

‘Protecting our valuable creative industries, which have already suffered significant losses as a result of people sharing digital content without paying for it, is at the heart of these measures. The Digital Economy Act serves to reduce online copyright infringement through a fair and robust process and at the same time provides breathing space to develop better business models for consumers who buy music, films and books online. We expect the measures will benefit our creative economy by some £200m per year and as rights holders are the main beneficiaries of the system, we believe our decision on costs is proportionate to everyone involved.’

The costs sharing decision applies to both the notification and appeals process.  Following serious consideration of the issue of appeal costs, it has been decided that no fee should be charged to internet subscribers who wish to use the appeal system to refute a notification.  However, as a free system risks the possibility of large numbers of unnecessary appeals, the Government will monitor the situation closely, and reserves the right to introduce a small fee at a later stage. 

Nicholas Lansman, ISPA Secretary General, commented, ‘ISPA has consistently argued for the beneficiary pays principle and is disappointed with today’s announcement. Full cost recovery for serious law enforcement cases is an established rule and ISPA sees no reason why it should not be the case here’.

The decision will now be notified to the European Commission before being introduced in Parliament as a Statutory Order.   Ofcom’s Online Copyright Infringement Initial Obligations Code will implement the notifications process and will also reflect the decision on costs.  This will come into force in the first half of 2011.

The Government’s full response to the consultation can be found at: 

That response actually fails to address many of the issues raised, by SCL for one. It remains to be seen whether the draft regulations will do so.

One aspect of the Government response is of concern because it misrepresents the SCL response to the consultation. The Government states in its summaries of responses that two responses were received from ‘legal societies’. It seems clear that one of these was from SCL. It states as follows:

‘Generally both were content with the overall approach and proposals. Both agreed with the 75:25 ratio and both felt there should be a fee to access the appeals system (with safeguards for the less well off). 

One respondent [this was SCL] commented that Ofcom’s estimated costs appeared high. Also it was suggested that eligible costs should include any “Ofcom audit” costs and that both capital and operational expenditure should be eligible.’

In fact the SCL response on allocation as between copyright holders and ISPs was as follows ‘The SCL represents the interests of a variety of stakeholders, and does not have an opinion on whether the allocation of costs is fair’. It was not thus expressing a view that it was ‘content’ with the proposals. In fact, the SCL Response to the consultation highlighted a series of omissions in the draft regulations that accompanied the consultation and in the scheme which they underpin. It questioned the incentives for ISPs in the proposed structure:

‘The SCL questions whether requiring ISPs to bear 25% of the costs would provide an incentive to ISPs to take voluntary measures to reduce online copyright infringement. ISPs will incur significant start-up costs to establish systems for processing CIRs [copyright infringement reports]. If the only way of recouping these start-up costs is to process CIRs, then ISPs may have an interest in ensuring that they process as high a number of CIRs as possible, and so may not be inclined to take steps to reduce the number of CIRs received. An alternative methodology would be to implement another funding mechanism that reimburses these costs irrespective of the number of CIRs processed.’